Financial Review

Deep Purple

Sinclair Noe — August 28, 2017

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DOW – 5 = 21,808
SPX + 1 = 2444
NAS + 17 = 6283
RUT + 4 = 1382
10 Y – .01 = 2.16%
OIL – 1.06 = 46.81
GOLD + 18.70 = 1310.50

Top Cryptocurrencies

	Name	Symbol	Market Cap	Vol.	Total Vol. %	Price USD	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	$72.45B	$1.97B	35.42%	$4,382.87	1	0.30%	10.85%
	Ethereum	ETH	$32.71B	$888.16M	15.99%	$346.91	0.0792256	0.52%	7.71%
	Bitcoin Cash	BCH	$9.87B	$217.09M	3.91%	$596.14	0.136145	-3.90%	-1.30%
	Ripple	XRP	$8.58B	$536.77M	9.66%	$0.22	0.00005111	10.36%	22.54%
	Litecoin	LTC	$3.27B	$561.89M	10.12%	$62.04	0.0141764	0.58%	31.76%
	Dash	DASH	$2.67B	$58.50M	1.05%	$355.65	0.0812671	-2.40%	28.00%
	NEM	XEM	$2.52B	$9.61M	0.17%	$0.28	0.00006393	1.89%	10.03%
	IOTA	MIOTA	$2.40B	$23.92M	0.43%	$0.86	0.00019694	-6.36%	-1.14%
	Monero	XMR	$2.14B	$213.80M	3.85%	$142.61	0.0325879	9.37%	87.55%
	NEO	NEO	$1.90B	$43.59M	0.78%	$38.08	0.00869772	-3.69%	8.21%

The Weather Company’s chief meteorologist called it “a tragedy of epic proportions.” The National Weather Service said it was “unprecedented” and “beyond anything experienced.”

National attention has been focused on Texas since Friday, when Hurricane Harvey hit the coast. The hurricane is now a tropical storm and it has moved back out over water. The storm is expected to head back to land over the next 48 hours, skirting Houston to the east and taking dead aim at Beaumont.

The problem with this storm is not so much the winds which devastated Rockport Texas, but the rains which are expected to continue for the next 3 to 4 days. Houston has already received more than 2 feet of rain. So much rain has fallen, the National Weather Service had to update the color charts on their graphics, anything over 20 inches is deep purple.

According to the National Hurricane Center, 50 inches of rain in total could end up falling on Houston and Galveston and other cities along the coast. That means the already serious flooding will only get worse.

Rivers, creeks and bayous around Houston are expected to crest tonight. The Army Corps of Engineers began releasing water from overwhelmed reservoirs in Houston to stymie some of the flooding in the city’s downtown, though the procedure could flood additional homes.

There are also ongoing threats from tornadoes and storm surge. Five deaths have already been reported, and officials expect the toll to rise. Tens of thousands of people could have to take refuge in shelters.

Ten oil refinery plants around Houston and Corpus Christi are shut down, according to a report by S&P Global Platts. Goldman Sachs estimates the hurricane has taken 3 million barrels a day of refining capacity offline. Among the companies cited in the report as shutting down refineries are Exxon Mobil, Valero, Citgo, Shell, and Phillips 66.

The storm has, so far, shut down one-quarter of oil production from the Gulf of Mexico. More refinery shutdowns are expected. In the short-term, this will likely mean higher gasoline prices. And while the storm will curtail offshore crude oil production in the Gulf of Mexico, crude futures dropped today. That’s because the supply impact is more than offset by the hit to demand for crude by the refinery shutdowns.

Several pipelines were also closed, potentially stranding crude in Texas and interrupting gasoline supplies to other parts of the country. The refineries will not be accepting new shipments of crude, but that also means there will be a shortage of gasoline. So today oil dropped while gasoline prices jumped.

At the pump, retail gasoline prices were moving higher, with the U.S. national average at $2.377 a gallon, a rise of 1.5 cents from Sunday and 4.6 cents from a week ago, according to fuel data site GasBuddy. Gas prices are up about 14 cents per gallon over the past 12 months.

Domestic energy stocks were slammed today. Exxon down 0.3% and Chevron down 0.4%. Refiner Valero Energy climbed 1.1 percent.

Other commodities were also hit today. Cotton Futures in New York rose as much as 2.6 percent to 69.95 cents a pound. Texas is the largest U.S. cotton producer — even as many farmers are storing excess supplies on fields following a bumper harvest.

The deluge of rain has left some animals stranded in floodwater in the state that leads the U.S. in beef production. Cattle futures on the Chicago Mercantile Exchange rose as much as 2.6 percent today, reaching the highest price in almost three weeks.

The hurricane has also disrupted air travel across the country, as Houston’s 2 main airports Hobby and International are flooded, resulting in close to 2,000 flight cancellations.

If past patterns are any indication, gross domestic product data will reflect a negative impact from the hurricane in the third quarter and the fourth quarter will look stronger. But gross domestic product does not paint an accurate picture of the economic damage from an event like Hurricane Harvey.

Houstonians will lose homes and cars. Insurance these days is paying for less and less. This will be a huge hit to household wealth not captured in the GDP statistics. The standard way to measure the economy through GDP doesn’t measure the stock of wealth that’s lost.

For example, many people will have to replace their damaged cars. When they buy a new one that shows up as stronger GDP, but that GDP number does not consider that the earlier car was destroyed. Travelers Insurance was the largest drag on the Dow today, with a 2.6 percent drop.

Early reports suggested many Houstonians don’t have flood insurance. So, while auto policies might cover submerged cars, homeowners’ policies will not cover submerged homes. There will be enormous uninsured losses. Harvey’s cost could mount to $30 billion when including the impact of relentless flooding on the labor force, power grid, transportation and other elements that support the region’s energy sector, Chuck Watson, a disaster modeler with Enki Research.

That would place it among the top eight hurricanes to ever strike the US.

David Havens, an insurance analyst at Imperial Capital, said the final tally might be as high as $100 billion. Less than a third of Harvey’s losses are likely to be insured. Typical insurance policies cover wind but not flooding, which often proves costlier.

In the Houston area, rainfall already has surpassed that of tropical storm Allison in 2001, which wreaked roughly $12 billion of damage in current dollars. In that case, only about $5 billion was covered by insurance. Most people with flood insurance buy policies backed by the federal government’s National Flood Insurance Program.

As of April, less than one-sixth of homes in Houston’s Harris County had federal coverage. The federal program itself is already struggling with $25 billion of debt. The existing program is set to expire on Sept. 30 and is up for review in Congress.

This is not the first hurricane to hit the Houston area. Go back just a few years and remember Rita and Ike. More people died evacuating than the damage caused by Hurricane Rita. For Harvey, no evacuation was called. This is just an example of the lessons learned and not learned by experience. And the lessons here are important.

Houston is a low-lying area, with clay soil that does not absorb water quickly, and as Houston has grown to the fourth largest city in the country, it has been paved over; so, when it rains, the water has nowhere to go. The big question is why the Gulf Coast area is not better prepared for these extreme weather events.

Across government, virtually the entire philosophy of disaster relief is to react after disaster strikes rather than help communities and residents to prepare in advance. This leaves Congress funding billions in disaster aid when an investment of millions ahead of time could have warded off the worst. And the problem is only likely to grow as a warmer climate brings more frequent and severe hurricanes, floods and droughts.

And although preventing damage is widely considered to be cheaper than mopping up after the fact, congressional accounting creates incentives to spend money exactly the opposite way: Disaster relief bills are generally considered emergency spending, and thus not counted toward the federal deficit, while proactive investment in planning and protection must be funded through the normal budget cycle, which makes it look like cuttable federal spending at budget time.

This morning, Texas Governor Greg Abbott activated the entire Texas National Guard of 12,000 people. FEMA said it deployed over 1 million meals, 1 million liters of water, and 1,800 staff members for the storm response.

If you are wondering how you can help, one of the best ways is to support the Red Cross by donating at redcross.org, or calling 1-800-RedCross, or texting HARVEY to 90999 to make a $10 donation.

This is Day One of the Amazon.com-Whole Foods merger. You can now buy an Amazon Dot or Echo at Whole Foods. And you might also notice that the food costs less – not cheap, just not as expensive. Amazon has demonstrated that it is willing to invest to dominate the categories that it decides to compete in. Food retailers of all sizes need to look hard at their pricing strategies.

Imagine being a tech company with so little profit that you could buy a grocery store and cut prices all while improving your margin. The other tech giants — Apple, Alphabet, Microsoft and Facebook — have operating margins for the latest quarter ranging from 23 percent to 47 percent. That’s the percentage of profit left after subtracting all the costs of goods sold as well as expenses for research and development, sales and marketing and administration.

Amazon’s operating margin for the second quarter was a paltry 1.7 percent. Whole Foods recorded operating profit of 4.8 percent. That means Jeff Bezos could cut Whole Foods margins in half and still have stronger margins than before.

Kite Pharmaceuticals shares surged 28% after Gilead Sciences agreed to buy the immunotherapy developer in a deal valued at $11.9 billion.

Tomorrow will be a challenge. Dow futures are about 100 points lower after Japan’s Prime Minister Shinzo Abe announced that North Korea fired a missile over Japan. The missile traveled more than 1600 miles Japan took no action to shoot down the projectile. Japanese broadcaster NHK reported that the North Korean missile broke into three pieces and fell into the sea. The U.S. Department of Defense said it is still assessing the missile launch.

NHK also reported that the Japanese government has convened an emergency meeting of its response team to collect and analyze information. The South Korean government has called for a national security council meeting.

Financial Review

Take 64

Sinclair Noe — May 4, 2017

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DOW – 6 = 20,951
SPX + 1 = 2389
NAS + 2 = 6075
RUT – .02 = 1388
10 Y + .05 = 2.36%
OIL – 2.31 = 45.51
GOLD – 9.70 = 1229.00

The House of Representatives narrowly approved a bill to repeal Obamacare. More specifically the House passed the American Health Care Act, which scraps the Obamacare mandates that people buy health insurance and that employers provide it, eliminates most of its tax increases, cuts nearly $900 billion from Medicaid while curtailing the program’s expansion, and allows states to seek a waiver exempting them from the current law’s crucial prohibition against insurers charging higher premiums to people with pre-existing conditions.

The party line vote was 217-213 with 20 Republicans voting against the bill.

Conservatives complained that the bill did not fully repeal the 2010 law, while moderates blanched at its cuts to Medicaid and its weakening of its most popular consumer protections. Hardliners in the House Freedom Caucus, who had denounced the original version of the bill as “Obamacare-lite,” dropped their opposition after securing an amendment allowing states to opt out of key insurance mandates.

Moderates and even some leadership loyalists balked, but they secured an 11th hour sweetener of their own: an extra $8 billion to help people with pre-existing conditions who might not be able to afford higher premiums that insurers could charge them in high-risk pools. The modest sum was no more than a political fig leaf, as policy analysts said it would not come close to making the new insurance pools work.

What pushed some reluctant members to vote yes in the final days was the growing realization that this bill might not become law. Not as it is currently written. As many hurdles as the American Health Care Act has overcome among Republicans in the House, it faces even more among the considerably narrower GOP majority in the Senate, where party leaders must win over 50 out of the chambers 52 Republicans.

Senators will re-work the legislation, and there is no guarantee they will even vote on it. So, for now, Obamacare remains the law of the land. Senators will now wait up to two weeks for CBO to review the House-passed bill.

The CBO analysis of the first version of the AHCA showed 24 million people would lose insurance coverage over the next 8 years. A widely-cited Quinnipiac University poll in March found that just 17 percent of respondents backed its passage, and that was before Republicans amended the measure to allow states to weaken popular consumer protections.

In a sign of the challenges ahead for the legislation, nearly every major-medical group, including the American Medical Association, American Hospital Association and the AARP, strongly opposed the Republican bill. In an analysis released on Thursday, healthcare consultancy and research firm Avalere Health said the Republican bill would cover only 5 percent of enrollees with pre-existing conditions in the individual insurance markets.

Following CBO analysis, it could take several weeks to agree on revisions, or a new bill entirely, that would then either be sent back to the House or to a conference committee for more negotiations. While the bill’s fate in the Senate is uncertain, its House passage could boost Trump’s hopes of pushing through other big ticket items on his agenda, such as tax reform.

The failure of previous efforts on the healthcare legislation had raised questions about how much Republicans could work together to help Trump fulfill his campaign pledges. Repealing Obamacare is the Senate’s problem now. Many people struggling with soaring premiums, deductibles, co-pays and other onerous costs blame Obamacare for their woes. Trump will become the target of the same criticism if Trumpcare passes, and probably even if it doesn’t.

The oil rally following OPEC’s deal has disappeared. Oil futures dropped to their lowest since late November on growing signs that OPEC’s production cuts are failing to clear a surplus of crude. Oil stocks felt the pinch, with the S&P Oil & Gas Exploration and Production Index slumping as much as 4.9 percent. OPEC is widely expected to extend its production caps for another 6 months but they are unlikely to make deeper cuts.

To counter OPEC cuts, US crude output has risen to the highest since August 2015 as shale drillers add rigs every week. US crude output rose by 28,000 barrels a day last week for the longest run of gains since 2012, according to Energy Information Administration data. Crude stockpiles fell by 930,000 barrels, far less than expected.

Meanwhile on the demand side, China has hit a speed bump and the Chinese government has clamped down on financial leverage and increased regulatory scrutiny of commodity trades.

In other oil-market news: Royal Dutch Shell reported adjusted first-quarter earnings of $3.75 billion, compared with $1.55 billion a year earlier.

US shale driller Chesapeake Energy posted its first quarterly profit since 2014 and braced shareholders for a production surge in the second half of the year as new natural gas and oil wells come online. Chesapeake Energy lost as much as 9.8 percent of its value.

Pioneer Natural Resources saw as much as $1.4 billion in market value wiped out on Thursday.

California Resources, the Los Angeles-based explorer spun off by Occidental Petroleum in 2014, fell as much as 11 percent.

In metals markets, copper posted its biggest 2-day loss since 2015 as the London Metal Exchange reported a 25 percent increase in copper stockpiles. Copper down 1% today, following yesterday’s 3.5% drop.

Meanwhile, iron ore is in full retreat, trading limit down and nickel dropped to a 10-month low on the LME, down 5.3% in the past 2 days. And all this commodity action is happening as the US dollar index continues to inch slightly lower.

Tennessee-based First Horizon agreed to buy North Carolina’s Capital Bank Financial in a deal the companies valued at $2.2 billion. They said it will make one of the largest regional banks in the Southeastern US. However, investors were far from excited and both stocks slumped.

Another busy day of earnings news. Viacom, the owner of MTV, Comedy Central and Nickelodeon, reported second-quarter profit that beat estimates on Thursday, but news that Charter Communications had re-tiered five of Viacom’s flagship networks to its most expensive programming tier, a move that will likely result in lower affiliate revenue for the media company, prompted a steep selloff.

Viacom, along with its peers, is also under pressure as more viewers cancel cable subscriptions to watch content online and advertisers increasingly shift ad dollars to the web. The pay-TV industry just reported its worst-ever first quarter subscriber loss, at an estimated 726,000 subscribers, over five times last year’s loss.

CBS Corp’s quarterly revenue and profit beat analysts’ estimates as the company benefited from higher content licensing and subscription fees, led by the streaming version of its Showtime network. Shares of the most-watched U.S. TV network were up 1.8 percent.

Advertising sales, which accounts for half of the company’s total revenue, fell 23 percent to $1.6 billion from a year earlier, which included popular events such as the 50th anniversary of the Super Bowl and an extra National Football League playoff game. Revenue from the company’s content licensing and distribution segment rose nearly 16 percent, while its affiliate and subscription revenue was up 16.6 percent.

Cornflakes maker Kellogg reported a better-than-expected quarterly profit. The world’s largest cereal maker has been battling weak sales as shoppers prefer healthier options over its processed food offerings. Kellogg launched the “Project K” restructuring program four years ago in a push to drive profit by cutting jobs and optimizing production.

Net income rose to $262 million, or 74 cents per share, in the first quarter ended April 1, from $175 million, or 49 cents per share, a year earlier. The planned tax benefit resulted in a 14-cent benefit to the company’s adjusted profit per share.

Shake Shack sinks after same store sales stall. (say that 5 times fast) Comparable sales for the quarter dropped 2.5%. The burger chain also said full-year 2017 same-store sales will be flat, trimming previous guidance for 2-3% growth.

Cities can sue banks over predatory lending. In Bank of America v City of Miami, the Supreme Court considered whether Miami may attempt to recoup losses it suffered from the 2008 recession by suing Bank of America and Wells Fargo, two of America’s biggest banks, for extending low-cost loans to white people while selling black people and Latinos risky mortgages with high fees and inflated interest rates.

Miami claimed that a decade of discriminatory lending contributed to segregation and led minority borrowers to miss payments and lose their homes. Foreclosures then depressed property values, bringing boarded-up windows and dangerous street corners. This spurred Miami to spend more on policing, fire protection and other city services while its tax base withered.

The impact on the city’s finances, Miami claimed, made it an aggrieved party under the Fair Housing Act (FHA), a law passed in 1968 prohibiting racial discrimination in the lease, sale and financing of property. The swing vote was Chief Justice John Roberts.

The Commerce Department reported the trade deficit dipped 0.1% in March, even as deficits with Mexico and Japan hit an almost 10-year high. The deficit dipped to $43.7 billion in March – a five-month low. Exports slid 0.9% to $191 billion, largely reflecting fewer shipments of pharmaceutical drugs and American-made cars. Imports edged down 0.7% to $234.7 billion.

There will be six Federal Reserve officials speaking on Friday and economists will be listening for clues about balance-sheet policy. The central bank did not shed any new light on the internal discussions on its plans to reduce its $4.5 trillion balance sheet on Wednesday when it released a short statement after a two-day meeting, where they left interest rates unchanged.

Initial U.S. jobless claims fell by 19,000 to 238,000 in the last week of April. Tomorrow is a Jobs Report Friday. Last month the March report showed a weak 89,000 new jobs. The April report is expected to bounce back with about 185,000 jobs.

Stocks Finish First Week of New Year Higher

Charles Schwab: On the Market

Posted: 1/6/2017 4:15 PM ET

Stocks Finish First Week of New Year Higher

U.S. stocks finished the trading day and week nicely higher and the Dow came within a point of touching the 20,000 mark intraday. In economic news, a mixed December labor report was headlined by solid wage growth. Treasuries, gold and crude oil prices were lower and the U.S. dollar advanced. On the equity front, Gap posted upbeat holiday sales and profit guidance and JCPenny announced an unexpected decline in same store sales.

The Dow Jones Industrial Average (DJIA) increased 65 points (0.3%) to 19,964, the S&P 500 Index gained 8 points (0.4%) to 2,277 and the Nasdaq Composite advanced 33 points (0.6%) to 5,521. In moderate volume, 759 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.23 to $53.99 per barrel and wholesale gasoline lost $0.01 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price lost $7.68 to $1,172.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.6% to 102.17. Markets were higher for the week, as the DJIA increased 1.0%, the S&P 500 Index added 1.7% and the Nasdaq Composite advanced 2.6%.

Gap Inc. (GPS $23) traded higher after the clothing retailer reported a 2.0% year-over-year (y/y) increase in same-store sales for the November and December holiday period, led by a jump in sales at its Old Navy unit and a gain at its Gap stores, which more than offset a drop at its Banana Republic chains. The company noted improved momentum over the holiday season and a positive customer response. GPS said it expects adjusted 2016 earnings-per-share (EPS) to be modestly above the high end of its previous guidance.

J.C. Penney Co. Inc. (JCP $8) finished lower after the company posted an unexpected y/y decline in same-store sales over the November and December period, pointing out that the first three weeks of November proved to be challenging, consistent with the trends in the broader retail industry. However, JCP reaffirmed its full-year operating earnings outlook, noting that same-store sales for the six-week period from Thanksgiving week through the end of December were positive.

December jobs report mixed, trade deficit widens

Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in December, compared Bloomberg's forecast of a 175,000 increase. However, November was upwardly revised to a gain of 204,000 jobs. The total upward revision in October and November was 17,000. Private sector payrolls increased by 144,000, versus the forecasted gain of 170,000, after increasing by a positively revised 198,000 in November. Last month's employment increase was led by gains in healthcare and social assistance, while continuing to trend up in food services and drinking places, along with transportation and warehousing. 2.2 million jobs were added to payrolls in 2016, down from 2.7 million in 2015, but remained above 2 million for a sixth-straight year, the longest streak since 1999, per Bloomberg.

The unemployment rate ticked higher to 4.7% from 4.6%, matching expectations, while average hourly earnings rose 0.4% m/m, versus projections of a 0.3% increase, and November's unrevised 0.1% dip. Y/Y, wage growth was up 2.9%—the fastest pace since June 2009 when the recovery from the great recession was getting started—versus last month's 2.5% rate, and versus forecasts of a 2.8% gain. Finally, average weekly hours remained at November's downwardly adjusted 34.3 hours level, versus forecasts of a 34.4 level.

The favorable trend in wage growth bodes well for its impact on consumer spending, which is the main driver of the U.S. economy, and likely helping counter concerns about the likelihood of a faster pace of Fed rate hikes this year and the potential boost in inflation expectations.

Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, notes in his latest Schwab Sector Views: Entering 2017 the Same Way as 2016, we expect rising interest rates and improved economic performance in 2017. As a result, we have an underperform rating on those sectors that benefited most from low interest rates and yield chasing—utilities and telecommunications—and an outperform rating on those that could benefit from better growth and modestly higher rates we rate: financials and technology. Read more at www.schwab.com/marketinsight, where you can also find timely analysis on the inflation environment in Schwab's Fixed Income Director, Collin Martin's, CFA, article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

The trade balance (chart) showed that the deficit came in at $45.2 billion in November, compared to estimates of $45.4 billion. October's deficit was revised lower to $42.4 billion. Exports dipped 0.2% m/m to $185.8 billion, while imports rose 1.1% to $231.0 billion.

Factory orders (chart) fell 2.4% m/m in November, versus expectations of a 2.3% fall, while October's figure was adjusted higher to a 2.8% rise. November durable goods orders—preliminarily reported two weeks ago—were adjusted up to a 4.5% drop, versus expectations of an unrevised 4.6% drop. Orders of nondefense capital goods excluding aircraft—a proxy for business spending—were unrevised at the initially reported 0.9% increase.

Treasuries finished lower with the yield on the 2-year note increasing 5 basis points (bps) to 1.21%, the yield on the 10-year note gaining 7 bps to 2.42% and the 30-year bond rate advancing 6 bps to 3.01%.

Bond yields and the U.S. dollar have moderated this week from recent rallies that came courtesy of post-election optimism, the string of upbeat economic data, and the Fed's December rate hike and a faster-than-previously-forecasted pace of rate increases for 2017. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights. Kathy also addresses the potential changes facing the fixed income market and the jump in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

With the stock markets coming off a sharp rally to close out 2016 and the potential for sideways movement and/or potential pullbacks as we enter 2017, see Senior Vice President of the Schwab Center for Financial Research, Mark Riepe's, CFA, latest podcast, 7 Principles for Investing Success, at www.schwab.com/insights.

Europe adds to weekly gains, Asia mixed

European equities showed some late-day strength and the Stoxx Europe 600 Index added to a solid weekly advance, as the markets digested a mixed December U.S. employment report, which showed job growth missed forecasts but wage growth topped expectations and continued to gain steam. Also, there was some mixed economic data in the region for traders to grapple with. German and eurozone November retail sales both fell, with the former dropping more than expected, while eurozone economic confidence for December improved more than expected. The euro and British pound lost ground on the U.S. dollar, while bond yields in the region moved higher. For timely analysis of the global landscape, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed ahead of today's key U.S. labor report, while the recent rebound in the yen pressured export-related stocks in Japan. Mainland Chinese shares declined, while stocks in Hong Kong advanced, bolstered by some upbeat manufacturing and services sector reports, along with a recent reprieve in the tumble in the nation's currency. The data has added credence to Schwab's Jeffrey Kleintop's, CFA, view in his article, Happy Unrecession: The Alice in Wonderland economy, that while volatility may lie ahead for stocks, a prolonged bear market and recession seem unlikely for 2017. Australian securities finished flat, with strength in financials being met with weakness in basic materials stocks, while the country reported that its trade balance unexpectedly swung to a surplus for November. Indian stocks declined and South Korean equities finished higher.

Schwab's Director of International Research, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio. Read the above articles at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

2017 picks up where 2016 ended

Stocks picked up in 2017 where 2016 left off, rallying to record highs and the Dow threatening the 20,000 mark, with the post-election momentum continuing, despite President-elect Donald Trump taking aim again via twitter at protecting manufacturing activity in the U.S. Trump threatened General Motors Co. (GM $36) and Toyota Motor Corp. (TM $120) with a "big border tax" if they manufacture vehicles in Mexico that are sold in the U.S. The tweets were met with Ford Motor Co. (F $13) cancelling plans for a $1.6 billion new plant in Mexico, and instead saying it will invest $700 million to expand its Flat Rock plant in Michigan. A plethora of upbeat global manufacturing and services data, highlighted by stronger-than-expected U.S. reads from ISM and Markit, added support for stocks. The data, coupled with strong December auto sales and the upbeat wage component of Friday's labor report, appeared to foster optimism that the economy is already gaining steam ahead of the expected more business-friendly proposed policies of the incoming Trump administration. Stocks maintained gains for the week even as Macy's Inc. (M $31) and Kohl's Corp. (KSS $42) headlined a plethora of disappointing sales reports for the critical holiday season. The U.S. dollar dipped amid some choppiness in the foreign exchange markets, with focus on reprieves from recent drops in the currencies from China and Mexico. The rally in Treasury yields moderated somewhat after the Street seemed to view the Fed's December meeting minutes as slightly more dovish. Crude oil prices dipped despite relatively bullish inventory data, while uncertainty festered regarding if production cuts among the major world oil producers will come to fruition later this month.

Next week will be the first full week of the New Year, but the U.S. economic calendar will be light, with the releases of the NFIB Small Business Optimism Index, JOLTS job openings and the Producer Price Index (PPI) headlining the docket. However, we will get our first glimpses at 4Q earnings season with Bank of America Corp. (BAC $23), Dow member JPMorgan Chase & Co. (JPM $86), and Wells Fargo & Co. (WFC $55) set to deliver results on Friday.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Luminous Times: Looking Ahead With Optimism About 2017, corporate earnings have joined the economy in hitting an inflection point. Aggregate S&P 500 earnings spent four consecutive quarters in an earnings recession; with the third quarter of 2016 marking the turn from negative to positive. The jump in earnings growth to 12% currently expected for 2017 helps ease a valuation concern. We remain optimistic that this is an ongoing secular bull market in U.S. stocks; and the risk of it ending swiftly is low, but the trajectory of gains will likely not be as fierce as witnessed immediately post-election; and we do expect bouts of volatility. Read mote at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

International reports due out next week include: Australia—building approvals and retail sales. China—CPI and PPI, lending statistics and trade balance. India—CPI and industrial production. Eurozone—investor confidence, unemployment rate and industrial production, along with German trade balance. U.K.—trade balance, and industrial and manufacturing production.

Stocks Stir up Mixed Finish as S&P can't Shake Red

Charles Schwab: On the Market

Posted: 11/11/2016 4:15 PM ET

Stocks Stir up Mixed Finish as S&P can't Shake Red

U.S. stocks finished a wild week in mixed fashion with technology issues rebounding from a recent pullback and healthcare stocks giving back some of a post-election boost. Energy issues were also under some pressure as crude oil prices resumed a selloff. Bond traders were sidelined in observance of the Veteran's Day holiday, keeping the recent Treasury yield rally in check. The U.S. dollar was higher and gold dropped, while equity news consisted of a mixed bag of earnings reports.

The Dow Jones Industrial Average (DJIA) gained 40 points (0.2%) to 18,848, the S&P 500 Index declined 3 points (0.1%) to 2,164 and the Nasdaq Composite gained 28 points (0.5%) to 5,237. In moderately-heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.25 to $43.41 per barrel, wholesale gasoline was $0.03 lower at $1.31 per gallon and the Bloomberg gold spot price was $32.50 lower at $1,226.70 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 99.06. Markets rallied for the week, as the DJIA surged 5.4%, while the S&P 500 Index and the Nasdaq Composite jumped 3.8% lower.

Dow member Walt Disney Co. (DIS $98) reported fiscal 4Q earnings-per-share (EPS) ex-items of $1.10, below the $1.16 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $13.1 billion, compared to the expected $13.5 billion. DIS' cable networks unit remains a big focus on the Street, and profits during the quarter from the segment decreased, due to declines at ESPN and the Disney Channel. However, DIS offered relatively favorable forecasts for the current year and the following year, including an upbeat forecast for ESPN subscribers. Shares gained ground.

J.C. Penney Co. Inc. (JCP $9) posted a 3Q loss of $0.21 per share, roughly in line with forecasts, as revenues decreased 1.4% y/y to $2.9 billion, below the forecasted $3.0 billion. 3Q same-store sales declined 0.8% y/y, compared to the expected 2.2% gain. JCP lowered its full-year same-store sales outlook. Shares overcame some early pressure to finish higher.

NVIDIA Corp. (NVDA $88) announced 3Q EPS ex-items of $0.94, well above the estimated $0.56, with revenues jumping 54.0% y/y to $2.0 billion, topping the expected $1.7 billion. NVDA issued stronger-than-expected 4Q profit guidance, boosted its quarterly dividend by 22.0% to $0.14 per share and added $2.0 billion to its share repurchase program. Shares surged nearly 30%.

Nordstrom Inc. (JWN $59) reported 3Q earnings ex-items of $0.84 per share, easily exceeding the projected $0.51, as revenues rose 7.2% y/y to $3.5 billion, roughly in line with forecasts. 3Q same-store sales grew 2.4% y/y, versus the anticipated 2.3% increase. JWN raised its full-year earnings and revenue outlooks. Shares traded higher.

Consumer sentiment improves more than expected, while bond markets were closed

The preliminary University of Michigan Consumer Sentiment Index (chart) this month rose to 91.6, topping the prior month's 87.2 level, and compared to the Bloomberg expectations of an increase to 87.2. The current economic conditions and outlook components of the survey both improved month-over-month. The 1-year and 5-10 year inflation estimates both rose to 2.7% from 2.4%.

The bond markets were closed in observance of the Veteran's Day holiday, with the yield on the 2-year note at 0.92%, the yield on the 10-year note at 2.15%, and the 30-year bond rate at 2.94%. Bond yields and the U.S. dollar have rallied this week with inflation and Fed rate hike expectations elevated in the wake of the surprising results from Tuesday's election, with Donald Trump being elected the 45th U.S. President and the Republicans maintaining control of the House and Senate.

For our latest analysis of the bond markets following the surprise election results, see Schwab's Chief Fixed Income Strategist, Kathy Jones' latest article, Change Is in the Air: A Post-Election Look at Bonds. Kathy notes that bond yields rose on news of Donald Trump's election win, in expectation of increased government spending. We believe higher inflation and interest rates are likely over the longer term, but the potential for protectionist trade policies and a stronger dollar could offset the effects of increased growth and inflation. We believe the likelihood of a Federal Reserve rate hike in December has diminished due to heightened market volatility, but market indicators suggest that a rate hike is expected. We suggest investors continue to maintain a short-to-intermediate duration portfolio with a focus on high credit-quality bonds. Read more at www.schwab.com/onbonds, and follow Kathy on Twitter: @kathyjones.

Stocks rallied up to and after the election results, with the global markets appearing to warm up to what a Trump Presidency and Republican control of Congress may mean for the economy. For more analysis of the election, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Trump Pulls Off an Upset, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016. Michael also joins Schwab's Liz Ann Sonders in the video titled, Election 2016: The Votes Are In, so Now What?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Financials jumped to lead the way, while a sharp rebound in bio-tech stocks boosted the healthcare sector, which had been beaten up leading up to the election. Utilities were a standout loser on the week. For post-election analysis of the stock market and the major sectors, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Refocusing at www.schwab.com/marketinsight. The election took center stage, aided by a relatively quiet economic front and as earnings season moved further down the home stretch. Thus far, with 454 companies in the S&P 500 Index delivering results, about 56% have topped revenue estimates and roughly 76% have bested earnings forecasts, per data compiled by Bloomberg. Crude oil prices extended their recent selloff.

Europe mostly lower, Asia mixed

European equities finished mostly lower, with the global markets grappling with the economic implications of Tuesday's surprising U.S. Presidential victory for Donald Trump, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, in his latest article, President Trump and Global Trade: How Will Campaign Promises Play Out?, and follow Jeff on Twitter: @jeffreykleintop. Oil & gas issues led to the downside as crude oil prices extended a selloff. The British pound pared gains versus the U.S. dollar amid choppy trading on heightened Brexit uncertainty, following a recent court ruling that the U.K. government would have to request parliamentary approval to trigger Article 50 and start official Brexit negotiations with the European Union (EU). For more analysis of the Brexit fallout, Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article, Keep Calm and Carry On: The Brexit Shock That Wasn't. Read both articles at www.schwab.com/oninternational. German consumer price inflation rose in line with forecasts for October, while U.K. construction output unexpectedly grew in September. The euro turned lower versus the greenback, while bond yields in the region extended a recent rally.

Stocks in Asia finished mixed after rallying yesterday as the global markets appear to be warming up to the surprising Presidential election results and the Republicans maintaining control of Congress. Japanese equities rose, with the yen modestly regaining some of yesterday's drop. Mainland Chinese stocks advanced, while shares trading in Hong Kong fell and Australian securities finished higher. Moreover, South Korean equities declined, with the Bank of Korea leaving its benchmark interest rate at 1.25%, while Indian listings dropped as emerging markets came under pressure on the recent rally in the U.S. dollar on the election results and still elevated expectations of a December Fed rate hike. After the closing bell, China reported softer-than-expected lending statistics for October, while India's industrial production rose by a larger amount than expected for September. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global economic landscape in his article, Recession Odds Pass Key Threshold, at www.schwab.com/oninternational.

Looking ahead

Next week, the U.S. economic docket will be headlined by reads on industrial production and capacity utilization, the Consumer Price Index, the Producer Price Index, housing starts and building permits, retail sales, the Leading Index and regional manufacturing reports. With the Presidential election now passed investors may be trying to decipher what impacts the result may have on the domestic economy. In the recent Schwab Market Perspective: Is the Fog Starting to Lift?, Schwab's experts discuss that despite the surprising election result, stocks have staged an impressive rally. The country has managed to move on following bitter election fights and continue to prosper to varying degrees, and we have little doubt that will occur this time around, too. As such, we urge investors not to overreact to the results and to remain focused on the long-term goals. Read the whole article as well as other timely articles from our experts at www.schwab.com/marketinsight, and be sure to follow Schwab on Twitter: @schwabresearch.

International reports due out next week that deserve mention include: China—retail sales, foreign direct investment and industrial production. India—wholesale prices, trade balance and CPI. Japan—industrial production and capacity utilization, 3Q GDP, machine tool orders and housing loans. U.K.—house prices, CPI, PPI, employment data and retail sales. Germany—CPI, 3Q GDP, PPI and the Zew business climate survey. Eurozone—industrial production, trade balance, CPI and construction output.

Markets Falter Amid Dearth of Positive News

Charles Schwab: On the Market

Posted: 10/11/2016 4:15 PM ET

Markets Falter Amid Dearth of Positive News

U.S. equities finished lower on the day, as investors weighed rising Fed rate hike expectations, disappointing results from Alcoa to unofficially kick off 3Q earnings season, and a fall in crude oil prices. Meanwhile, Treasuries lost ground amid a surprising decline in small business optimism, as did gold, while the U.S. dollar rallied.

The Dow Jones Industrial Average (DJIA) tumbled 200 points (1.1%) to 18,128, the S&P 500 Index fell 27 points (1.2%) to 2,137, and the Nasdaq Composite plummeted 82 points (1.5%) to 5,247. In moderate volume, 817 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.56 to $50.79 per barrel, wholesale gasoline ticked $0.02 lower to $1.48 per gallon and the Bloomberg gold spot price lost $6.01 to $1,253.64 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—jumped 0.8% to 97.66.

Alcoa Inc. (AA $28) unofficially kicked off 3Q earnings season, posting earnings-per-share (EPS) ex-items of $0.32, below the $0.33 FactSet estimate, as revenues declined 6.0% year-over-year (y/y) to $5.2 billion, versus the projected $5.3 billion. This is the last earnings report before it splits into two companies next month, one consisting of its legacy metal-producing businesses, known as Alcoa Corp, and the other comprised of its components operations named Arconic Inc. AA lowered its full-year guidance for its Arconic business due to near-term challenges and foreign exchange impacts. Shares were sharply lower.

Illumina Inc. (ILMN $139) tumbled nearly 25% after the DNA sequencing company warned that its 3Q revenue will be lower than previously forecasted, due to a larger-than-expected y/y decline in its gene sequencing instruments.

Samsung Electronics Co. Ltd. (SSNLF $1,350) dropped in South Korea as the company halted production and all sales of its Galaxy Note 7 smartphone in the wake of continued issues with batteries catching fire. Shares of Dow member Apple Inc. (AAPL $116) were modestly higher following the news.

Small business optimism dips

The National Federation of Independent Business (NFIB) Small Business Optimism Index for September dipped to 94.1 from August's 94.4 level, and compared to the Bloomberg forecast of a modest rise to 95.0.

Treasuries finished lower, after the bond markets were closed yesterday for Columbus Day, as the yield on the 2-year note rose 3 basis points (bps) to 0.86%, while the yields on the 10-year note and the 30-year bond increased 4 bps to 1.75% and 2.49%, respectively. Bond yields have gained ground as of late, courtesy of some upbeat economic data, hawkish Fedspeak, and the rise in crude oil prices. Schwab's Chief Fixed Income Strategist, Kathy Jones discuss the interest rate environment in her latest article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

The markets continue to discuss the U.S. political landscape in the wake of Sunday's second Presidential debate, and Schwab's Vice President, Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Where Do the Candidates Stand? Key Issues for Investors, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016. Also, Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the dynamic of household deleveraging and still high federal government debt in her article, Your Time is Gonna Come: Households' Leverage Down, Government Leverage Up, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

With Fed rate hike expectations gaining steam as of late, tomorrow's highlight of the U.S. economic calendar will likely be the afternoon release of the minutes from the Federal Open Market Committee's (FOMC) September meeting. The Fed held its monetary policy steady, noting that "the case for an increase in the federal funds rate has strengthened," but decided, for the time being, to wait for further evidence of continued progress toward its objectives. As noted in the recent Schwab Market Perspective: Crunch Time, the September FOMC meeting boosted expectations that a rate hike is likely before the end of the year; contingent on economic data remaining decent in the coming months. More of the FOMC’s voting body is leaning toward raising rates, as there were three dissenting votes on the decision to hold rates steady—a relatively high number indicating growing discordance among members. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

In addition, the Labor Department will release its Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, forecasted to show 5.80 million jobs were available to be filled in August, down from the 5.87 posted in July, as well as MBA Mortgage Applications.

Europe lower as Fed rate hike expectations rise, Asia mixed

European equities finished lower, with oil & gas issues giving back a recent rally amid a retreat in crude oil prices from yesterday's jump. Elevated Fed rate hike expectations and Alcoa's disappointing results to unofficially kick off earnings season likely weighed on global sentiment. The British pound remained under pressure on the Fed rate hike expectations and amid festering "hard Brexit" concerns. However, the downside pressure may have been limited by German investor confidence which jumped more than expected for October. The euro declined versus the greenback, while the Swedish krona is falling sharply following a cooler-than-expected read on consumer price inflation which is fostering speculation that the nation's central bank may need to deliver further stimulus measures later this month. Bond yields in the region finished mostly lower. Amid the backdrop of potentially heightened volatility on global growth, political and monetary policy uncertainty, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed with yesterday's continuation of the rally in crude oil prices boosting the energy sector, while rising expectations of a rate hike in the U.S. this year weighed on the yen. Japanese equities rose after being closed yesterday for a holiday, bolstered by the weakness in the yen, while energy stocks helped Australia's markets to notch a modest gain. Mainland Chinese securities advanced, though those traded in Hong Kong fell sharply after yesterday's holiday break, seeing pressure as real estate issues dropped on the heels of increased property curbs. The moves come ahead of tonight's key read on Japanese machine orders—a gauge of capital investment—and a plethora of Chinese economic data slated for this week and Schwab's Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational. South Korean equities tumbled, with a drop in Samsung Electronics' shares adding pressure amid the troubles surrounding its Galaxy Note 7 smartphone.

Looking ahead to tomorrow, in addition to the reports out of Japan and China, the international economic calendar will have the following on tap for release: the unemployment rate from South Korea, CPI from France and India, as well as industrial production from the Eurozone.

Markets Notch Gains on Jobs Report

Charles Schwab: On the Market

Posted: 9/2/2016 4:15 PM ET

Markets Notch Gains on Jobs Report

U.S. equities finished higher in the wake of a mixed August nonfarm payroll report that, albeit short of expectations, appeared solid enough to keep the notion of a September Fed rate hike still in play. Treasuries finished lower and the U.S. dollar gained ground following the report, which was accompanied by a larger-than-expected narrowing of the trade deficit. Elsewhere, equity news was mostly disappointing, headlined a severe miss in VeriFone’s guidance, while crude oil prices bounced back from this week's sharp decline and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 73 points (0.4%) to 18,492, the S&P 500 Index gained 9 points (0.4%) to 2,180, and the Nasdaq Composite increased 23 points (0.4%) to 5,250. In moderate volume, 791 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil rebounded $1.28 to settle at $44.44 per barrel, wholesale gasoline ticked $0.03 higher to $1.30 per gallon and the Bloomberg gold spot price jumped $11.01 to $1,324.90 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 95.86. Markets were up for the week, as the DJIA and the S&P 500 Index both increased 0.5%, and the Nasdaq rose 0.6%.

Lululemon Athletica Inc. (LULU $69) reported 2Q earnings-per-share (EPS) ex-items of $0.38, roughly in line with the FactSet estimate, with revenues rising 14.0% year-over-year (y/y) to $515 million, versus the projected $516 million. 2Q same-store sales rose 4.0% y/y, below the expected 5.0% gain. The yoga-wear maker's 3Q EPS guidance came in mostly below expectations, while its full-year outlook was roughly in line with estimates. Shares were sharply lower.

Gap Inc. (GPS $24) posted a 3.0% y/y drop in August same-store sales, larger than the 2.0% decrease that was anticipated. Sales at its Gap and Banana Republic stores both fell, more than offsetting a modest gain in sales at its Old Navy stores. Shares of GPS lost ground.

VeriFone Systems Inc. (PAY $17) announced fiscal 3Q profits ex-items of $0.42 per share, two cents above forecasts, as revenues decreased 3.4% y/y to $493 million, south of the estimated $516 million. The electronic payment solutions company lowered its full-year guidance and severely missed the Street's expectations with its 3Q outlook. Shares tumbled.

August employment growth misses, trade deficit shrinks more than forecasted

Nonfarm payrolls (chart) rose by 151,000 jobs month-over-month (m/m) in August, compared to the Bloomberg forecast of a 180,000 increase. The rise of 255,000 seen in July was upwardly revised to a gain of 275,000 jobs. The total downward revision to job gains in June and July was 1,000. Excluding government hiring and firing, private sector payrolls increased by 126,000, versus the forecasted gain of 180,000, after increasing by 225,000 in July, upwardly revised from the 217,000 rise that was initially reported. Employment continued to trend up in several service-providing industries, while declining in construction and manufacturing.

The unemployment rate remained at 4.9%, compared to expectations of a dip to 4.8%, while average hourly earnings grew by 0.1% m/m, below projections of a 0.2% increase, and July's 0.3% rise was unadjusted. Finally, average weekly hours dipped to 34.3 from July's downwardly revised 34.4 hours level, and versus forecasts of 34.5.

Although missing forecasts, job growth remained steady coming off the prior two months' solid gains and some are pointing out that August has been one of the most revised months on the calendar. However, the softer-than-expected wage growth and hours worked may be causing some concern. After a brief drop following the report, September rate hike expectations rose back to near levels that preceded the data, while the U.S. dollar reversed higher along with Treasury yields. Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her latest article, All Summer Long: Will the Extreme Lull in Volatility Persist?, on the heels of August's period of low volatility and volume, history shows similarly subdued periods tend to be followed by a lift in volatility, and some weakness in returns. Fed policy will likely drive much of any additional pickup in volatility and we expect to see the September odds move as economic data comes in over the next few weeks. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The trade balance (chart) showed that the deficit came in at $39.5 billion in July, compared to the $41.5 billion estimate. June's deficit was revised to $44.7 billion from the $44.5 billion posted earlier. Exports rose 1.9% m/m to $186.3 billion, and imports declined 0.8% m/m to $225.8 billion.

Factory orders (chart) rose 1.9% m/m in July, versus expectations of a 2.0% gain, while June's figure was adjusted lower to a 1.8% decrease. July durable goods orders—preliminarily reported a week ago—were unrevised at a 4.4% rise, and orders of nondefense capital goods excluding aircraft—a proxy for business spending—was revised lower to a 1.5% increase from the initially reported 1.6% rise. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses the industrials sector in his latest Schwab Sector Views: The Politics and Economics of Industrials at www.schwab.com/marketinsight. Follow Schwab on Twitter: @schwabresearch.

Treasuries finished mostly lower, as the yield on the 2-year note was flat at 0.78%, while the yield on the 10-year note gained 3 basis points (bps) to 1.60% and the 30-year bond rate advanced 5 bps to 2.28%. For analysis on the fixed income markets see the video from Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Fixed Income Strategist, Kathy Jones, titled Rate Hikes on the Horizon—but When? at www.schwab.com/insights. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

Please note: All U.S. markets will be closed on Monday in observance of the Labor Day holiday.

European stocks higher despite soft U.S. jobs report, Asia mixed

European equities moved to the upside, with the markets digesting the softer-than-expected U.S. nonfarm payroll report, which initially dampened recently heightened September Fed rate hike expectations. Oil & gas issues rebounded as crude oil prices recovered some of this week's sharp drop that had come on a rise in the U.S. dollar amid heightened Fed rate hike expectations and as inventory data has fostered oversupply concerns. The equity markets in the region recovered from yesterday's downside reversal that followed a disappointing read on U.S. manufacturing activity that overshadowed a jump in U.K. manufacturing output, which continued to suggest the late-June vote in the U.K. to leave the European Union, known as a Brexit, is having a limited economic impact thus far. For more analysis of the Brexit fallout, Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article,
Keep Calm and Carry On: The Brexit Shock That Wasn't.

Moreover, with the markets choppy and poised for increased volatility amid the diverging global monetary policy landscape and Brexit uncertainty, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read all these articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro was lower and the British pound was higher versus the greenback, while bond yields in the region finished mixed.

Stocks in Asia finished mixed in subdued volume on continued cautious trading ahead of today's key employment report in the U.S., which will follow yesterday's disappointing U.S. manufacturing data that appeared to dampen recently heightened expectations that the Fed will hike rates this month. Japanese equities were little changed, holding onto solid weekly gains that have been fostered by weakness in the yen as the U.S. dollar has rallied as of late amid the elevated Fed rate hike expectations. Chinese stocks, and those traded in Hong Kong advanced following some upbeat earnings results from the banking sector. Markets in Australia fell, as some weakness in healthcare, financials and oil & gas issues more than offset a rebound in the recently battered basic materials sector, while South Korean listings rose following the unexpected upward revision to its 2Q GDP growth to a 3.3% y/y rate, from the initial 3.2% expansion, and up from the 2.8% pace posted in 1Q. Finally, Indian securities moved modestly to the upside.

Stocks shrug oil's drop and soft manufacturing data

U.S. stocks finished modestly higher on the week, showing some resiliency in the face of a tumble in crude oil prices that pressured the energy sector on the recent strength in the U.S. dollar and inventory data that sparked oversupply concerns. The greenback had received a boost after last Friday's speech from Federal Reserve Chairwoman Janet Yellen and Vice Chair Fischer that suggested a September rate hike may be on the table. However, this week's data did little to change rate hike expectations, and financials continued to rally. Consumer Confidence and personal income and spending improved, and today's labor report showed job growth remained steady despite missing forecasts, countering an unexpected drop in the ISM Manufacturing Index into contraction territory for the first time since February and lackluster monthly auto sales. Global manufacturing reports were mostly positive, with U.K. and Chinese activity rising back into expansion territory, while eurozone output continued to grow. Treasury yields dipped on the short-to-medium end of the curve in choppy action as traders grappled with the mixed data. Equity news was relatively light, though Dow member Apple Inc. (AAPL $107) was in focus after the European Union (EU) Commission ruled that it was granted undue tax benefits in Ireland of up to $14.5 billion. Also, Hershey Co. (HSY $100) fell after Mondelez International Inc. (MDLZ $44) announced it has ended discussions regarding a possible combination of the two companies.

As noted in the Schwab Market Perspective: Get Ready for the End of the Summer Slumber, stocks have largely moved sideways over the past month with muted volatility and depressed volume. In our view, action is likely to heat up, with the threat of a near-term pullback within an ongoing bull market. U.S. economic data has perked up, but we need to see consistently better data to confirm a sustainable lift in growth beyond the third quarter. The Federal Reserve is indicating a desire to raise rates, but Friday’s slightly weaker-than-expected jobs report suggests a September hike is less likely. Read the whole perspective at www.schwab.com/marketinsight.

Short week will continue to bring key data

Although stunted by Labor Day, next week's U.S. economic calendar will bring a few data points for the markets to chew on amid uncertainty regarding a Fed rate hike, headlined by reads on the key services sector activity in the form of the ISM non-Manufacturing Index and Markit's Services PMI Index. These reports will be followed by the Fed's Beige Book—an anecdotal report on national economic activity used by the Central Bank to prepare for the next two-day monetary policy meeting ending on September 21. For a look at short-term implications for the market, see the video by Schwab's Liz Ann Sonders and Randy Frederick titled, Long-Running Bull Finally Attracting Believers? at www.schwab.com/insights.

International reports due out next that are worth mentioning include: Australia—Reserve Bank of Australia monetary policy decision and 2Q GDP. China—trade balance and inflation data. Japan—trade balance and 2Q GDP. Eurozone—European Central Bank monetary policy decision, retail sales, Markit's business activity report and 2Q GDP. U.K.—industrial/manufacturing production, Markit's business activity reports and trade balance.

Low Energy Leads Decline

Charles Schwab: On the Market

Posted: 8/31/2016 4:15 PM ET

Low Energy Leads Decline

U.S. stocks traded lower, with the energy sector leading the decline as crude oil prices fell following a bearish government inventory report. Global caution remained heightened amid Fed rate hike concerns as traders await Friday's key August labor report. Treasuries ticked lower following reads on employment, regional manufacturing and housing. The U.S. dollar was flat and gold was lower.

The Dow Jones Industrial Average (DJIA) declined 53 points (0.3%) to 18,401, the S&P 500 Index shed 5 points (0.2%) to 2,171, and the Nasdaq Composite decreased 10 points (0.2%) to 5,213. In moderately-heavy volume, 1.1 billion shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.65 to $44.70 per barrel, wholesale gasoline declined $0.04 to $1.33 per gallon and the Bloomberg gold spot price decreased $2.47 to $1,308.64 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 96.04.

Palo Alto Networks Inc. (PANW $133) posted fiscal 4Q earnings-per-share (EPS) ex-items of $0.50, roughly in line with the FactSet estimate, as revenues grew 41.0% year-over-year (y/y) to $401 million, above the expected $390 million. The cybersecurity company issued stronger-than-expected full-year EPS guidance and announced a $500 million share repurchase program. However, the company offered 1Q earnings and revenue guidance that missed estimates and shares closed solidly lower.

H&R Block Inc. (HRB $22) reported a fiscal 1Q loss of $0.55 per share, wider than the estimated $0.53 per share shortfall, as revenues declined 9.4% y/y to $125 million, below the forecasted $133 million. The tax preparation services company said 1Q results typically represent less than 5.0% of annual revenues and less than 15.0% of annual expenses, due to the highly seasonal nature of its business. Shares of HRB fell.

ADP's private sector employment report roughly matches forecasts

The ADP Employment Change Report showed private sector payrolls rose by 177,000 jobs in August, modestly above forecasts of 175,000, while July's gain of 179,000 jobs was revised higher to a 194,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader August nonfarm payroll report, expected to show an increase of 180,000 jobs, while private sector payrolls are projected to rise by the same amount (economic calendar). The unemployment rate is forecasted to dip to 4.8% from 4.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m). Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

The Chicago Purchasing Managers Index (chart) fell more than expected but remained in expansion territory (above 50), after dropping to 51.5 in August from 55.8 in July and versus expectations of a decline to 54.0. New orders fell amid some widespread weakness, though the lone component that saw a rise was employment.

Pending home sales grew 1.3% m/m in July, versus projections of a 0.7% gain and following the downwardly revised 0.8% drop registered in June. Compared to last year, sales were 2.2% lower, versus forecasts of a 2.2% increase. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell for the first time since February in July.

The MBA Mortgage Application Index rose 2.8% last week, after declining 2.1% in the previous week. The increase came as a 3.7% gain for the Refinance Index was accompanied by a 1.3% rise for the Purchase Index. The average 30-year mortgage rate remained at 3.67%.

Treasuries inched lower, with the yields on the 2-year and 10-year notes gaining 1 basis point to 0.81% and 1.58%, respectively, while the 30-year bond rate was flat at 2.23%.

For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Kathy Jones, titled Rate Hike on the Horizon—but When? at www.schwab.com/insights and follow Randy on Twitter: @randyafrederick. Also, for the latest on the subdued market action in the "dog days" of summer, Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest article, All Summer Long: Will the Extreme Lull in Volatility Persist? at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the U.S. economic calendar will bring the tail end of a global look at August manufacturing activity, in the form of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. ISM's index is projected to dip to 52.0 from 52.6 in July, while Markit's report is expected to be unrevised at 52.1, down slightly from July's 52.9 reading. Readings above 50 for both indexes depict expansion in manufacturing output. As noted in the Schwab Market Perspective: The Calm Before the…., the latest batch of U.S. economic data doesn’t appear to presage an imminent recession, which would typically lead to a bear market. However, it will be difficult to get the U.S. economy rolling without an improvement in productivity, which is undoubtedly being constrained by ongoing tepid capital spending. Read the whole perspective at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Europe mostly lower, Asia mixed

European equities gave up early gains and finished mostly lower, led by oil & gas issues as crude oil prices extended a recent pullback on a bearish oil inventory report. Also, basic materials stocks continued to see pressure amid the recent weakness in metals prices. Global caution remained a drag on conviction amid heightened U.S. Fed rate hike expectations as Friday's key August nonfarm payroll report looms on the horizon. However, financials were the lone bright spot, continuing their recent rally on the Fed rate hike expectations and eased global growth uneasiness, bolstered by some M&A chatter toward the German banking sector. A much stronger-than-expected German retail sales report failed to boost stocks, with separate reports showing eurozone consumer price inflation came in cooler than expected in August and the region's unemployment rate remained at 10.1%, versus projections of a dip to 10.0%. The data comes ahead of tomorrow's manufacturing PMI reports for August.

The euro overcame early weakness and ticked higher and the British pound gained ground versus the U.S. dollar, while bond yields in the region finished higher. With the markets choppy and poised for increased volatility amid the diverging global monetary policy landscape and Brexit uncertainty, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed, with the global markets awaiting Friday's key August employment report in the U.S. as Fed rate hike expectations remain elevated, along with tonight's Chinese business activity reports. Japanese equities gained ground, with the yen extending its weakness to boost export-heavy issues on the U.S. rate hike expectations and as recent commentary from Bank of Japan officials continues to bolster optimism of further stimulus measures on the heels of a preliminary report showing the nation's industrial production came in flat m/m for July, compared to estimates of a 0.8% gain. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money.

Mainland Chinese stocks rose, while those traded in Hong Kong declined amid some caution ahead of tonight's releases of the nation's Manufacturing and non-Manufacturing PMI Indexes and as some banking sector earnings were mostly favorable. Australian equities were bogged down by basic materials and oil & gas issues amid the pressure on metals and crude oil prices as of late, while South Korean listings also closed to the downside. Finally, Indian securities moved higher, buoyed by recent data showing foreign investment into the nation continued. After the closing bell, India reported 2Q GDP growth of 7.1% y/y, down from the 7.9% expansion seen in 1Q and below the expected growth of 7.6%. Schwab's Jeffrey Kleintop discusses Five ways investors can make the most of slower growth. Read both of Jeff's articles at www.schwab.com/oninternational.

In addition to the aforementioned Chinese reports, the international economic docket for tomorrow will include a plethora of manufacturing PMI reads from Japan, India, Germany, France, Italy, the Eurozone and the U.K. Japan will also release reports on capital spending, company profits and vehicle sales.